When you move from one country to another, it is very important to plan ahead to ensure your income and assets will be structured as tax efficiently as possible. Leaving it until you arrive in your new country may be too late for some tax planning opportunities and you may pay more tax as a result.
When you move from one country to another, it is very important to plan ahead to ensure your income and assets will be structured as tax efficiently as possible. Leaving it until you arrive in your new country may be too late for some tax planning opportunities and you may pay more tax as a result. This applies whether you are moving from the UK to a live in a new country, as well as if you are moving back to the UK.
While right now you may have no plans to return to the UK, circumstances may change, sometimes unexpectedly. Many UK nationals do return at some point. Often the surviving spouse will return after the death of their partner. If and when you do decide to return, the most important tax tip I can give you is that you need to do careful planning in advance of your return.
Ideally you should complete any necessary arrangements in the UK tax year (6th April to 5th April) before you return. As always, you also need to pay close attention to how UK taxation interacts with local taxation in your new country of residence.
When will your UK residence start?
Split year tax treatment became statutory in April 2013, as part of the UK’s new Statutory Residence Test.
Individuals may be able to claim split year treatment if they arrive to live or work full time in the UK, or they arrive and start to have a home there. (Another three circumstances where this treatment can be claimed relate to those leaving the UK).
You need to understand all the complexities of the new test to determine your residence status for tax purposes. It will depend on the number of days in the UK as well as the number of “ties” you have. It also depends on whether you are classified as an “arriver” or “leaver”. Even though you are moving back to the UK, you would still be a leaver if you were UK resident in one of the previous three tax years.
Be aware that your UK residence will not necessarily start the day you arrive back in the UK to live.
If you buy or rent property for your use in the UK before you leave your current country, to use as a base while visiting the UK while planning your return, this could unwittingly affect your UK residence status.
Professional advice is essential to avoid any surprises down the line.
UK tax on investible assets
Once you are resident in the UK, you would normally be liable to UK taxes on your worldwide income and gains.
This includes any income or gains in offshore trusts in which you have an interest. Trusts are a complex area so you will need to seek specific advice for your circumstances.
If you carry out the appropriate planning while still non-UK resident, you may be able to benefit from tax advantages when you return which are not ordinarily available to UK residents. It may be possible to arrange your investible assets in a manner where you can enjoy tax free growth and income as a UK resident, but you need to start your planning early enough.
If you have transferred your UK pension funds into a Qualifying Recognised Overseas Pension Schemes (QROPS), you need to seek specialist advice on the best way forward.
You could keep the QROPS as it is, or transfer to a UK scheme, or switch to a Qualifying Non UK Pension Scheme (QNUPS). You need to understand the pros and cons of each option and how they relate to your circumstances.
Aside from QROPS, anyone who has taken flexible drawdown needs to be aware that if they return to the UK within five tax years of leaving, they will have to pay income tax on the total amount of withdrawals made during their period out of the UK, at their highest marginal rate, in the year of their return. This would be in addition to any tax paid while resident in another country, with no credit allowed for the overseas taxes.
Part 2 will look at capital gains tax, inheritance tax and life assurance policies. In the meantime, if you are planning on returning to the UK, be aware that this is a complex area, and not one for do-it-yourself tax planning. Blevins Franks specialises in tax planning in both UK and they key European countries of Spain, France, Portugal, Cyprus and Malta, and how the regimes interact.
30 May 2014
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.